Virgin Galactic’s Business Challenges Need Reflection

“Past performance is no guarantee of future results.”

Some readers might be familiar with that previous statement. For those unfamiliar with it, though, it’s a reminder required by U.S. law to notify prospective investors that all investments are risky. It’s probably a statement many Virgin Galactic investors and ticket holders are familiar with, if not because of the law but more likely because of their Virgin Galactic experience so far. 

It all looked promising when Burt Rutan won the Ansari X-prize competition in October 2004.

Instead, nearly 20 years later, Virgin Galactic’s business has come to exemplify almost every negative stereotype of the technology industry. Lots of hype, sexy images, and grand plans? Check. Charismatic founder who’s never dabbled in space before? Check. Constantly highlighting a market’s potential? Check. Talk of changing the industry through vague experiences? Check. Always requiring more money? Check. Dragged out technology development? Check. 

This is not to say Virgin Galactic hasn’t flown customers. The company started its commercial suborbital fair ride service in 2023, 19 years after Rutan’s award-winning flight on SpaceShipOne. And then, it ended the flights a little over a year later, in June 2024. That must be some kind of space industry record to take so long to develop a small suborbital spaceplane, use it commercially for a year, and then stop flying it. Microsoft’s Kin phone had a shorter lifetime, but the company took maybe a year to develop it, not 20 (not even counting Rutan’s development of SpaceShipOne).

The Blame Game

Considering the lengthy history of waiting and its subsequent short commercial and operational history, the company shouldn’t blame spectators and potential customers for pooh-poohing its business model. And yet, that’s what Virgin Galactic appears to be doing when its CEO, Michael Colglazier, says:

“There are lots of opinions about Virgin Galactic’s business model shared on various social channels and platforms. We find many of those opinions are missing key pieces of information…”

First, nobody should take opinions from “various social channels and platforms” seriously (🙄). If there’s anything to be learned from the great conflagration of “the socials,”  it is that they amplify a lot of nonsense. Blocking or not responding is usually the best solution to many “engagements.” Sometimes humor helps. It’s not that social media isn’t useful–it is–but when diving into cesspools, one must have a tough skin, preferably covered in something much more substantial.

Somewhere in Virgin Galactic, a communications professional is grinding their teeth because they probably advised Colglazier not to frame Virgin Galactic’s story during a call this way. Hopefully, it will be the only time he references that as a reason for responding, but if he continues, he’s already lost. I’ve seen this scenario play out in one of my old workplaces. Trolls and pundits have nothing to lose, but CEOs attempting to out-troll them can have their jobs taken away.

He could have just framed it as an update, something like “Virgin Galactic’s pursuit of the nascent and potentially profitable suborbital spaceflight market continues to be validated by…” That would have done the trick, answering naysayers and doubters while showing the company is still excited about the business. And it wouldn’t sound defensive. Richard (not Charles-don't know where that came from) Branson, showman and Virgin Galactic founder, probably knows this.

Same Business Model as the Old One

Here’s my second observation: Colglazier’s statement is defensive. 

He jumped into the social cesspools without any protection and then drank it in. He feels the need to contribute to the residue by proving that Virgin Galactic is right and the opinionators are wrong. However, the problem is that whatever “key pieces of information” Colglazier refers to, they don’t seem to be in the investor update presentation or his comments. It would have been nice if those key pieces had been highlighted somehow. You know…make it easy for investors and reporters to see and communicate what they are.

Based on the latest information, however, VG’s business model seems to be the same one I critiqued in July 2021. Back then, I viewed the company as one that provides suborbital fair rides to people willing to pay the equivalent of an average U.S. house price for a few minutes of microgravity experience. 

These companies’ business models appear, then, to follow ancient practices. There is nothing wrong with this, but their market may be limited. However, this history partially answers one pertinent question about Virgin Galactic’s and Blue Origin’s activities: Are they the businesses of the future? Since hot air balloon rides tend to fall into a novelty service, perhaps not. Of course, this answer is based on history and on less expensive technology. 

It may surprise some that I didn’t have a problem with the model itself, other than it wasn't moneymaking. I believed the prices being charged at the time—$250,000/seat–seemed unsustainable. VG seems to have come to an agreement with that assessment and increased per-seat pricing since then, up to the $600,000/seat mentioned in the investor update. Whether the company can shift from fair rides to actual transportation is still a question. The fair ride is a profitable niche with a limited future and a smaller customer base.

Company History and Questions

Based on Colglazier’s comments and the presentation, VG hasn’t stepped back from its business's fair ride aspect. The customers it’s targeting appear to be the same set–people willing to spend silly money for a unique experience. But in 2021, I had concerns, and the latest news from VG eliminated just one part of them.

I suggest reading my article to understand the scope of concerns. Keep in mind that certain investors were discussing the possibility of point-to-point travel (which VG didn’t mention at all in the update). Here’s the shortlist:

• It’s a complicated system.
  • Two different airframes and systems
  • Complexity increases risk 
• It’s an expensive system(s)
• It’s a relatively slow system for point-to-point
• Point-to-point requires an infrastructure build-out, whether in Dubai or New York.
• Its pilot-to-passenger ratio is too high (four pilots, I think, for six passengers–maybe that’s down to three now?)

Again, it appears that Virgin Galactic is abandoning point-to-point as a business and focusing on upgraded spaceplanes and airplanes. Any concern I have about that is nullified. But it’s still complicated, with a few significant single points of failure. It’s still expensive, but the per-seat price increases will help. Ultimately, the new spaceplanes don’t add capability. They merely augment Virgin Galactic’s current fair ride model. Based on the company’s presentation, it will not stray from its fair ride business anytime soon. 

I suggest that many of the questions Virgin Galactic is facing do not necessarily arise from its fair ride model. They probably came to the fore because of how the company has been conducting its business, especially how long it took to finally fly its first paying customers. It made a lot of promises during the lead-up to that first flight, creating a lot of hype cycle ups and downs. It created, spun off, operated, and bankrupted a smallsat launch system during that time. The broken promises, the snaillike pacing, and now the pause of the old system to roll out a new one combine to create a plethora of doubts.

To expect people to believe that Virgin Galactic can build and deliver new spaceplanes and airframes by late 2025 and commercially fly them in 2026 is to ask them to ignore the company’s past performance, which hasn’t been stellar. People familiar with Virgin Galactic aren’t missing key pieces of information–it’s just that there’s so much information contrary to the company’s hype that they aren’t willing to swallow just a little more of it.

It’s reasonable for people to question the company’s future because, sometimes, past performance indicates future results.